Taking a lump sum from a pension allows it to be treated as an asset that you can transfer to a protective trust structure. Otherwise, it will be considered as an income stream, which is vulnerable to nursing home contribution. Legally, once the money is in a trust, you don't own it anymore.
The Asset Protection Trust, an irrevocable trust also called a house trust can protect their home and savings from being consumed by the cost of nursing home care. It is different than a revocable living trust.
The basic rule is that all your monthly income goes to the nursing home, and Medicaid then pays the nursing home the difference between your monthly income, and the amount that the nursing home is allowed under its Medicaid contract.
Medicaid will count your IRA or 401k as an available source of funds to pay for your care, unless it is in payout status.
In short, YES, you can designate a trust as the future beneficiary of your 401(k) retirement account. Leaving your inheritance in a trust allows you to control where and how your assets are divided after your death. Learn the pros and cons to this type of legacy planning, given IRS rules and limitations.
(1) Put the 401k or IRA in Payout Mode
If this is done properly, then Medicaid will not count the IRA or 401k as an asset. This strategy must be crafted carefully, because you cannot just start taking withdrawals in any amount, you have to take RMD per IRS life expectancy charts for tax purposes.
What am I allowed to keep for personal expenses? You are allowed to keep a minimum of £25.65 each week for your own personal use. People who receive pension credit (savings credit) could be entitled to a further £5.90 personal allowance per week.
Steve Webb replies: Moving into a care home will not affect the amount of state pension someone receives, but receiving a state pension may affect the amount of help they get with meeting their care costs. This will depend on whether they are paying for the care themselves or if the place is publicly funded.
If you're moving into residential care (such as a care home or nursing home), the value of your home will be included as part of your capital in the financial assessment. However, should you be receiving care in your own home, the assessment will not include the value of your home.
Retirement accounts definitely do not belong in your revocable trust – for example your IRA, Roth IRA, 401K, 403b, 457 and the like. Placing any of these assets in your trust would mean that you are taking them out of your name to retitle them in the name of your trust. The tax ramifications can be disastrous.
If you move into permanent residential or nursing care and you have a partner still living at home, you can choose to pass on half your private pension to them. This then means that 50 per cent of your private pension will be disregarded from the Financial Assessment.
Going Into Care With Your House In Trust
The trouble with trust schemes is that if you put your property in trust, then go into a residential care home or a nursing home, your home is no longer owned by you - it is not part of your capital and cannot therefore be used to fund your care home fees.
The parent's property could be placed on the market and the sale proceeds used to fund their care if they are moving to a care home but only if no-one else is living in the property.
Selling a loved one's home to pay for dementia care
Your aunt won't necessarily have to sell her home to pay for her care – it depends on her circumstances. Her local authority will assess her finances to see how much of her care fees she must pay herself.
Does your pension stop if you're in hospital? A pension is designed to support you in later life, allowing you a degree of financial stability when you're no longer earning income from work. Therefore, you'll continue to receive income from your pension throughout your retirement regardless of your state of health.
You and/or any qualifying dependants who live in your home have the right to stay there indefinitely, and can't be forced to sell up to pay for your care.
One of the most frequent questions asked at Family Caregiver Alliance is, “How can I be paid to be a caregiver to my parent?” If you are going to be the primary caregiver, is there a way that your parent or the care receiver can pay you for the help you provide? The short answer is yes, as long as all parties agree.
If they pass away, their estate will be liable to pay for outstanding fees. When a person dies, the care home will issue an invoice for any outstanding fees. This is not for the family to pay, it will be taken from their estate, such as remaining money in their bank account.
Federal Poverty Level thresholds to qualify for Medicaid
The Federal Poverty Level is determined by the size of a family for the lower 48 states and the District of Columbia. For example, in 2022 it is $13,590 for a single adult person, $27,750 for a family of four and $46,630 for a family of eight.
Retirement funds: Retirement accounts such as your 401(k), IRA, or TSP are considered assets.
Each state sets its own rules, but, in general, owning such assets as a 401(k) will disqualify you from getting Medicaid benefits. There is no means test for Medicare, and owning a 401(k) has no effect on your eligibility for this program. To be eligible for Medicare, you usually must be age 65.